Understanding Travel Insurance
In recent weeks I have been getting a lot of questions about travel insurance. It is such a confusing subject and many people are concerned about their financial obligation if they need to cancel their trip due to COVID-19 closures and restrictions. Unfortunately, most travel insurances do not cover pandemics or in many cases political unrest or hurricanes. Generally, fear of travel is not a covered event under most of the policies.
In order to assure the least financial responsibility for canceled trips is to add cancel for any reason (CFAR) to your travel insurance. But the thing about CFAR is that it needs to be made within 14 days of the first deposit on your trip. It can not be made after the fact, just like you can’t add home insurance when your house is in the path of a hurricane.
While I do have experience with canceling vacations for a myriad of reasons, I am not an insurance agent and do not know the ins and the outs of all of the policies. There are different types of travel insurance, different coverage, and of course different prices. Make sure you know exactly what your policy will and will not cover before you purchase anything.
Before becoming a travel advisor I used to think travel insurance was a waste of money. In the past 5 years I have seen so many unexpected situations arise, travelers lose money that would have been protected?
The question boils down to a matter of risk, and the best way to assess that risk is by answering four basic questions.
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Are you willing to risk the loss of deposits or prepayments if your trip is canceled for any reason?
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Are you willing to pay out of pocket if you need to return home early from your trip for any reason?
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Are you willing to foot the bill for any out-of-pocket medical expenses, ranging from basic emergency care to emergency medical evacuation home, if you encounter any sickness or injury on your trip?
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Do you have a credit card or general insurance that includes bundled travel insurance?
Do I buy travel insurance for a weekend trip to visit my cousin? No. Do I buy it for my cruise during hurricane season? You bet!
Types of Plans
TCI: Trip-cancellation insurance (TCI) covers prepayments that you can’t recover if you have to cancel a trip in advance. TCI is a “named peril” insurance, which means it pays off only when you cancel for one of the covered reasons specified in the policy’s fine print. Typical TCI provides coverage with sickness and accidents, but is more restrictive about other reasons to cancel.
TII: Trip-interruption insurance (TII) covers the costs of an early return by normal means.
Medical and Emergency Evacuation: Medical and Emergency Evacuation insurance (Medevac) covers costs of hospitalization and medical treatment when you’re traveling. It covers the costs of extraordinary transportation assistance, from the site of an accident or onset of sickness, to a hospital, and back home. Keep in mind that you may need to pay up front for your medical services, and then your insurance company will reimburse you later, once you’ve filed a claim.
Travelers with pre-existing medical conditions will need to be more careful about the travel insurance or healthcare coverage they purchase. Pre-existing medical conditions are often defined by insurance companies as: “Any injury, sickness or condition for which medical advice, diagnosis, care or treatment was recommended or received within the 180-day period ending on your date of departure. Conditions are not considered pre-existing if the condition for which prescribed drugs or medicine is taken remains controlled without any change in the required prescription.” Meaning: The insurance may only cover health problems that are proved to be unforeseen
Most standard single-trip travel insurance policies allow you to cancel or alter your plans when certain unforeseen events happen before your departure. These events might include sudden illness or injury affecting you or your travel companion, job loss, severe home damage or the death of a non-traveling family member.
But what if you want the flexibility to cancel your trip for reasons beyond the insurance company’s listed one, and still get reimbursed for travel costs? Standard coverage would not be good enough; you’d need to purchase Cancel for Any Reason (CFAR) insurance.
As an example under standard cancellation coverage, you can’t cancel due to travel advisories from the CDC or any other governmental agency without losing your deposits. You can’t cancel because the cruise line changed the itinerary, leaving off your dream destination. You can’t cancel for fear of terrorism, worries about California wildfires or concerns about volcanic eruptions near your destination.
But a CFAR policy allows you to cancel your trip and any associated prepaid activities for whatever reason you choose.
Cancel for any reason insurance is not a standalone policy but an add-on to a standard travel insurance policy. You usually must buy these upgrades within 14 to 21 days of making the first payment (i.e., a deposit) toward your trip. That date marks your intent to pay for the entire trip; if you eventually cancel your plans (for any reason), your claim will consist of only the nonrefundable amounts you have paid.
Keep in mind, travel insurance typically costs between 5% to 10% of your total trip cost. For example, if you paid $5,000 for your trip and your base policy was $500 (10% of trip cost), you might pay an additional $200 for CFAR coverage.
Here are several established travel insurance companies and comparison sites from which you can consider buying a policy:
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